diff --git a/src/pydantic2linkml/tools.py b/src/pydantic2linkml/tools.py
index 0fcb22fb..e4f3743f 100644
--- a/src/pydantic2linkml/tools.py
+++ b/src/pydantic2linkml/tools.py
@@ -611,13 +611,18 @@ def apply_schema_overlay(schema_yml: str, overlay_file: FilePath) -> str:
     :param overlay_file: Path to an existing overlay YAML file
     :return: Canonical YAML string with the overlay applied, keys in
         SchemaDefinition order
-    :raises ValueError: If ``schema_yml`` does not deserialize to a dict
+    :raises ValueError: If ``schema_yml`` does not contain valid YAML or
+        does not deserialize to a dict
     :raises YAMLContentError: If the overlay file does not contain a YAML
         mapping
     :raises InvalidLinkMLSchemaError: If the result does not conform to
         the LinkML meta schema
     """
-    schema_dict = yaml.safe_load(schema_yml)
+    try:
+        schema_dict = yaml.safe_load(schema_yml)
+    except yaml.YAMLError as e:
+        raise ValueError(f"schema_yml does not contain valid YAML: {e}") from e
+
     if not isinstance(schema_dict, dict):
         raise ValueError(
             f"schema_yml did not deserialize to a dict: {type(schema_dict)}"
diff --git a/tests/test_tools.py b/tests/test_tools.py
index f5babbb4..755aad40 100644
--- a/tests/test_tools.py
+++ b/tests/test_tools.py
@@ -733,6 +733,14 @@ def test_schema_yml_not_dict_raises_value_error(self, tmp_path: Path):
                 schema_yml="- item1\n- item2\n", overlay_file=overlay_file
             )
 
+    def test_schema_yml_invalid_yaml_raises_value_error(self, tmp_path: Path):
+        overlay_file = tmp_path / "overlay.yaml"
+        overlay_file.write_text("name: new-name\n")
+        with pytest.raises(ValueError):
+            apply_schema_overlay(
+                schema_yml="key: [unclosed\n", overlay_file=overlay_file
+            )
+
     def test_unknown_field_raises_invalid_schema_error(self, tmp_path: Path):
         overlay_file = tmp_path / "overlay.yaml"
         overlay_file.write_text("not_a_field: some_value\n")